This is a very serious issue and one that is often asked recently.
Am I suitable for stock trading? Why do I always lose money?
We all know that the probability of retail investors making money in the stock market is less than 30%, and the probability of making a lot of money is less than 10%.
70% of retail investors are destined to fill the market's gaps, and there is nothing that can be done about it.
When hurt by the market time and time again, many people start to doubt themselves, which is also inevitable.
Some people realize that they are not suitable for the stock market and finally leave the market, which may not be a bad thing.
However, I advise everyone not to be too discouraged, because the success or failure in the stock market is never in a day or two, and it requires a cycle.
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Only after experiencing a major bull and bear market can one know whether they can make money in the market, and what we are currently experiencing is just a part of the bear market.
People often ask how to distinguish between a bull and bear market.
From 2019 to 2020, a large number of stock and fund investors entered the market. In such a market, regardless of how much it rises or falls, whether it is a structural market, it can be considered a bull market.Between 2021 and 2023, there was almost no increase in capital, and the market remained sluggish throughout, which could be considered a bear market.
Bull or bear market, by looking at the large funds, whether they make money or lose money, it can actually be clearly judged.
If the large funds are losing money, it's normal for you to lose some money too, after all, no matter how poor the fund manager is, their team is still stronger than the average retail investor.
The average retail investor, in a bear market, losing some money is normal, there's no need to be disheartened, after all, the big money-making cycle has not yet arrived.
It's like many fund investors say, they will never buy funds again.
This is like the fund investors who have been adding positions all the way at the bottom of the bear market, deciding to lie flat and not add positions anymore.
Always bottom-fishing halfway up the mountain, and then lying flat at the bottom, is the law of the market and human nature.
The main reason why retail investors don't make money is that they can't escape human nature, if they want to make money, they must fight against human nature.
Only by understanding the matter of human nature can one get closer and closer to the matter of making money.Bai Mao Xue Tang
01 Trading System.
The main reason why most retail investors cannot escape human nature is because they lack a trading system; this is the essence.
Without a good trading system to constrain the average retail investor, making investments according to their own human nature, the result is undoubtedly going to be a loss.
Therefore, if retail investors want to make money in investments, they must have a trading system that can constrain themselves.
Retail investors in the market are prone to reckless behavior and are easily enslaved by emotions, which are essentially due to the lack of a trading system.
Without a system that can effectively manage the investments of retail investors, their behavior will produce commonality, or rather, follow human nature.
In all the major cycle patterns in the stock market, the first rule is to harvest the emotional trading in the market.
That is, the cold trading system, now called the quantitative system, continuously uses the mentality of emotional investors to harvest their money from chasing rises and killing falls.
Many people regard the trading system as very advanced, believing that the trading system is a set of systems for making money.In fact, the trading system itself serves primarily to constrain trading behavior, rather than guaranteeing a 100% win rate.
Even large investment institutions cannot ensure that their trading systems will make a profit every time.
Otherwise, why do those large investment companies also suffer losses?
The money that evaporates from the market, in the trillions or even tens of trillions, can't all be from retail investors, can it?
So, it's important to understand that a trading system is a powerful tool to restrain the emotions of retail investors. Optimizing the trading system is the essence of how retail investors can achieve profitability.
Bai Mao Xue Tang
02 Trading Mindset.
If the trading system is a constraint, then the trading mindset is the execution power under that constraint.
For the trading system to be effective, it must be executed according to the system.And continuously correct the right and wrong of transactions under the results of execution.
Why is the trading mentality very important?
It is because the trading mentality directly determines whether the trading system can be effectively executed and optimized.
If your mentality collapses, then the trading system you have established before will also collapse directly, let alone optimization.
Only by being calm and objective in looking at your own trading system, and then correcting according to each transaction result, is the way out.
The market often has a situation where a single Yang changes three views.
At this time, the mentality of many retail investors will undergo a drastic change in a short period of time.
The fluke mentality of retail investors often breaks the original trading rhythm and makes blind actions.
And when falling, they will be eager to replenish the warehouse, thereby significantly increasing the position.
Many retail investors are on the way down, and they make up the warehouse all the way, which ultimately leads to a big loss.The so-called mindset is actually to enable retail investors to better execute their trading systems, avoiding unnecessary losses due to blind trading.
Behind human nature, there is a gambling nature, especially in the trading market.
Most retail investors lose money, not because there is a big problem with the trading system, but because of a collapse in mentality.
Therefore, the tempering and adjustment of mentality are particularly important, and it is also the key to making money.
If you have had an in-depth conversation with those who make money, you will find that their mentality is far better than that of ordinary people.
Calm as still water, unshaken by changes.
Bai Mao Xue Tang
03 Basic Cognition.
To make money in investment, the essence is to increase basic cognition.The essence of making money in the stock market can be summarized in three words: finding patterns.
Industry development leads to an increase in stock prices, which is a form of cognition.
The growth of a company's net profit leads to an increase in stock prices, which is a form of cognition.
A rise in the overall market, with ample liquidity of funds, leads to an increase in stock prices, which is a form of cognition.
When a company's valuation is very low and there is room for correction, the stock price rises, which is still a form of cognition.
There are many reasons for the rise in stock prices, and to understand the issue, what is needed is still cognition.
The underlying cognition is like the foundation, the more solid it is, the greater the potential space for future increases.
Usually, an investor who can make money in the stock market has very solid underlying cognition.
They either have a thorough understanding of the general laws of economic cycles or have their own insights into the general laws of industry development.
Either they are very sensitive to the cyclicality of funds, or they have conducted thorough research on the situation of listed companies.In summary, the cognition in a certain field far exceeds that of other investors. The gap in underlying cognition determines the gap in the investment field, which is particularly key and directly affects the prediction of market direction. The so-called investment experience is actually the underlying cognition. There are only two ways to accumulate cognition: one is to learn modestly, and the other is through practical experience. Regardless of the method, cognition and investment experience can be accumulated step by step. The accumulation of experience will change from qualitative to quantitative, from low winning rate and high odds to high winning rate and low odds. Once you cross the critical point, you will find that investment is so simple, and you only need to master one of the rules.